NORTH BAY -- For reasons that are the subject of frequent debate, the daily S&P 500 has oscillated more in the past decade — commonly 3 to 4 percent — than in the prior 40 years, according to a recent New York Times analysis. And 2011 has been no exception, with markets riding a political and economic turmoil that many say is of historic significance.
It’s a roller coaster ride that has rattled the nerves of many investors, some of them fleeing equity markets for lower-volatility investments such as bonds, or even pulling out of investing entirely.
Yet as the North Bay Area’s wealth advisers hear from some nervous clients, many are offering this reassurance: despite the emotional effect of witnessing stocks fluttering dramatically before closing, recent market swings stand to have little effect on long-term portfolios and are a far cry from the desperate climate seen during the 2008 downturn.
To many, a well-balanced investment portfolio looks the same as it has in the past, with investors commonly settling on 60 percent in equity investments and 40 percent in lower-yield, lower-risk funds. In fact, to some advisers, the face-value volatility of 2011 has masked several reasons to be happy about investing this year.
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“Pick any index you want — the long-term line is upward sloping,” said John Whiting, partner at Moss Adams Wealth Advisors. “It seems to me that it doesn’t take much in the way of news to really create skittishness on the part of investors. When investors react to that news, they tend to hurt themselves in the process.”
Individual investors often feel the fluctuations harder than those using a wealth manager, advisers said. Many are overconfident, trying to buy “the next Microsoft” while attempting to stay ahead of the rising and falling of markets in general.
The problem with that approach, as opposed to a more broadly based portfolio splitting risk and stability, is that rising and falling markets can take those investors along for the ride, adding risk and volatility that drives some to say “enough is enough” prematurely.
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“It’s the long-range planning that seems to make the difference. Those people who have taken the time and effort to plan out where they’re going seem to be able to withstand the pain better,” said Irv Rothenberg, principal at Santa Rosa’s Wealth Management Consultants, LLC.
In the relatively short term, Mr. Rothenberg said that many investors have seen lower-than-expected returns on their portfolios through the recessionary period. Those who had hoped for a return between 7 percent to 9 percent over the past 10 years could come away with 4 percent to 5 percent after the economy sped downward with the collapsing housing market in 2008.
However, while those yields have been enough to affect the long-term planning for some clients, Mr. Rothenberg said that history has been full of recessionary periods. Wealth management firms have been using more data visualization tools to illustrate these trends to their clients recently, he said, and many are learning that staying in the markets during seemingly uncertain times makes them well-poised to catch on to days when stocks trend upward.
“Having 50 years’ worth of bars (data) — this year it's earning 20, this year it’s losing 10 … it is very seldom any kind of steady progression, and it’s been that way since 1927,” he said.